The US housing market is on the cusp of a “deep freeze” as rising mortgage rates and high home prices conspire to limit buying and selling activity, a leading economist warned this week.
Mark Zandi, chief economist at Moody’s Analytics, pointed to a slowdown in interest among prospective home buyers. Sales of pre-owned homes fell 14.2 percent in June from the same month a year ago, although the median sales price rose 13.4 percent to $416,000 over the same period, according to the National Association of Realtors.
“It makes sense,” Zandi told CNBC, “with higher mortgages coupled with higher home prices, first-time home buyers can’t afford it. And commercial buyers, they’re pretty much locked out because if they sell and buy, they have to get another mortgage at a higher rate and their monthly payments are going up.”
Zandi added that real estate investors are “stepping aside” until market conditions become more favorable.
“Demand is weakening very quickly and you’re right, I think housing is going into a deep freeze,” Zandi said.
As the Federal Reserve raises interest rates to fight inflation, all types of credit are becoming more expensive. The rate of mortgage loan applications recently hit a 22-year low as higher rates and higher home prices keep real estate buyers out of the market.
Constructive trust fails
Earlier this week, the National Builders/Wells Fargo Housing Market Index for July homebuilder confidence fell 12 points to 55, the lowest level since May 2020 as builders reacted to worsening conditions.
“House prices have gone up,” Zandi said.
“We are not arguing that we will fail; What I would argue is that there is a big change coming when it comes to house prices. “I think the market is under a lot of stress,” he added.
Earlier this week, Pantone Macroeconomics Chief Economist Ian Shepherdson said that housing market demand and confidence were “melting”.
The Post reported in June that Zandi and other economists have warned that a housing correction is inevitable as interest rates rise — although experts say the slowdown will not be as deep as the 2008 subprime mortgage crisis.
Meanwhile, mortgage lender Freddie Mac reported Thursday that the 30-year rate rose for the second straight week to 5.54%, up from 5.51% last week. A year ago, the average 30-year rate was 2.78 percent.